Goodwill impairment is an accounting condition that arises when the book value of goodwill, an intangible asset recorded during acquisitions, is found to be worth more than its recoverable amount. This can happen due to changes in market conditions, decline in business performance, or shifts in strategy that adversely affect the acquired business.

For instance, if a company acquires another for its synergy potential and pays more than the fair value of its net assets, the excess amount paid is recognized as goodwill. Over time, if the expected associated benefits, such as revenue growth or cost savings, do not materialize, this goodwill value may need to be adjusted downward through an impairment charge.

Recording an impairment of goodwill is necessary to reflect current business realities in financial statements. Items related to this concept include the balance sheet reconciliation to ensure correct representation, and financial metrics adjustments, such as EBIT or EBITDA.